DEPOSITORY INSTITUTION REPORTS

1

FFIEC

Federal Financial Institutions Examination Council

Arlington, VA 22226

CALL REPORT DATE: September 30, 2019

THIRD 2019 CALL, NUMBER 289

SUPPLEMENTAL INSTRUCTIONS

September 2019 Call Report Materials

There are no new or revised Call Report data items in the FFIEC 031 and the FFIEC 041 Call Report forms

this quarter. In contrast, effective this quarter, the banking agencies have expanded eligibility to file the

FFIEC 051 Call Report to institutions with total assets less than $5 billion that also meet certain non-asset-size

criteria. In conjunction with the expanded FFIEC 051 filing eligibility, the agencies have reduced the reporting

frequency for a number of existing data items in the FFIEC 051 Call Report from quarterly to semiannually.

In addition, a limited number of data items currently reported in the FFIEC 041 Call Report have been

incorporated into the FFIEC 051 Call Report, generally with a reduced reporting frequency, and are applicable

only to certain institutions with $1 billion or more in total assets. One new topic has been added to the

Supplemental Instructions for September 2019: “Small Bank Assessment Credits.” The topic on “Premium

Amortization on Purchased Callable Debt Securities” has been removed; information on this topic has been

included in the Call Report instruction book updates for September 2019.

Separate updates to the instruction book for the FFIEC 051 Call Report and the instruction book for the

FFIEC 031 and FFIEC 041 Call Reports for September 2019 are available for printing and downloading from

the FFIEC’s website (https://www.ffiec.gov/ffiec_report_forms.htm) and the FDIC’s website

(https://www.fdic.gov/callreports). Sample FFIEC 051, FFIEC 041, and FFIEC 031 Call Report forms,

including the cover (signature) page, for September 2019 also can be printed and downloaded from these

websites

1 and FFIEC 041 Call Reports for September 2019 are available for printing and downloading from

the FFIEC’s website (https://www.ffiec.gov/ffiec_report_forms.htm) and the FDIC’s website

(https://www.fdic.gov/callreports). Sample FFIEC 051, FFIEC 041, and FFIEC 031 Call Report forms,

including the cover (signature) page, for September 2019 also can be printed and downloaded from these

websites. In addition, institutions that use Call Report software generally can print paper copies of blank forms

from their software. Please ensure that the individual responsible for preparing the Call Report at your

institution has been notified about the electronic availability of the September 2019 report forms, instruction

book updates, and these Supplemental Instructions. The locations of changes to the text of the previous

quarter’s Supplemental Instructions (except references to the quarter-end report date) are identified by a

vertical line in the right margin.

Submission of Completed Reports

Each institution’s Call Report data must be submitted to the FFIEC's Central Data Repository (CDR), an

Internet-based system for data collection (https://cdr.ffiec.gov/cdr/), using one of the two methods described

in the banking agencies' Financial Institution Letter (FIL) for the September 30, 2019, report date. The CDR

Help Desk is available from 9:00 a.m. until 8:00 p.m., Eastern Time, Monday through Friday, to provide

assistance with user accounts, passwords, and other CDR system-related issues. The CDR Help Desk can

be reached by telephone at (888) CDR-3111, by fax at (703) 774-3946, or by e-mail at CDR.Help@ffiec.gov.

Institutions are required to maintain in their files a signed and attested hard-copy record of the Call Report data

file submitted to the CDR

tern Time, Monday through Friday, to provide

assistance with user accounts, passwords, and other CDR system-related issues. The CDR Help Desk can

be reached by telephone at (888) CDR-3111, by fax at (703) 774-3946, or by e-mail at CDR.Help@ffiec.gov.

Institutions are required to maintain in their files a signed and attested hard-copy record of the Call Report data

file submitted to the CDR. The appearance of this hard-copy record of the submitted data file need not match

exactly the appearance of the sample report forms on the FFIEC’s website, but the hard-copy record should

show at least the caption of each Call Report item and the reported amount. A copy of the cover page printed

from Call Report software or from the FFIEC’s website should be used to fulfill the signature and attestation

requirement. The signed cover page should be attached to the hard-copy record of the Call Report data file

that must be placed in the institution's files.

Currently, Call Report preparation software products marketed by (in alphabetical order) Axiom Software

Laboratories, Inc.; DBI Financial Systems, Inc.; Fed Reporter, Inc.; FIS Compliance Solutions; FiServ, Inc.;

KPMG LLP; SHAZAM Core Services; Vermeg (formerly Lombard Risk); and Wolters Kluwer Financial Services

meet the technical specifications for producing Call Report data files that are able to be processed by the

CDR. Contact information for these vendors is provided on the final page of these Supplemental Instructions.

tems, Inc.; Fed Reporter, Inc.; FIS Compliance Solutions; FiServ, Inc.;

KPMG LLP; SHAZAM Core Services; Vermeg (formerly Lombard Risk); and Wolters Kluwer Financial Services

meet the technical specifications for producing Call Report data files that are able to be processed by the

CDR. Contact information for these vendors is provided on the final page of these Supplemental Instructions.

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

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Small Bank Assessment Credits

As of September 30, 2018, the Deposit Insurance Fund (DIF) reserve ratio, the balance of the DIF as a

percentage of estimated insured deposits, reached 1.36 percent, exceeding the statutorily required minimum

reserve ratio of 1.35 percent. Under FDIC regulations issued pursuant to the Dodd-Frank Wall Street Reform

and Consumer Protection Act, all insured depository institutions that were assessed as small institutions

(generally, those with total consolidated assets of less than $10 billion) at any time during the period from

July 1, 2016, through September 30, 2018, were awarded assessment credits (“small bank assessment

credits”) for the portion of their assessments that contributed to the growth in the reserve ratio from the former

minimum of 1.15 percent to 1.35 percent. The FDIC notified all such eligible institutions of their respective

assessment credit amounts in January 2019.

FDIC regulations further provide that the FDIC will automatically apply small bank assessment credits up to

the full amount of an institution’s credits or its quarterly deposit insurance assessment, whichever is less,

starting in the quarterly assessment period when the DIF reserve ratio reaches or exceeds 1.38 percent.

The reserve ratio increased to 1.40 percent as of June 30, 2019, thereby exceeding 1.38 percent for the

first time since small bank assessment credits were awarded

ent credits up to

the full amount of an institution’s credits or its quarterly deposit insurance assessment, whichever is less,

starting in the quarterly assessment period when the DIF reserve ratio reaches or exceeds 1.38 percent.

The reserve ratio increased to 1.40 percent as of June 30, 2019, thereby exceeding 1.38 percent for the

first time since small bank assessment credits were awarded. As a consequence, the FDIC automatically

applied small bank assessment credits to offset institutions’ second quarter 2019 assessments, which were

due September 30, 2019. Therefore, when an institution that was awarded small bank assessment credits

prepares its Call Report for September 30, 2019, it should offset (i.e., reduce) the deposit insurance

assessment expense it accrued for the second quarter and included in its June 30, 2019, Call Report in

Schedule RI, item 7.d, and, if applicable, Schedule RI-E, item 2.g, by the amount of assessment credits the

FDIC applied against its second quarter 2019 deposit insurance assessment.

FDIC regulations provide that any small bank assessment credits in excess of an institution’s quarterly

assessment will be used to offset a bank’s deposit insurance assessments in future quarters until credits are

exhausted, as long as the reserve ratio exceeds 1.38 percent. However, on August 29, 2019, the FDIC issued

for a 30-day comment period a proposed rule that would provide that once the FDIC begins to apply small

bank assessment credits to quarterly deposit insurance assessments (which took place September 30, 2019),

the FDIC would continue to apply such credits as long as the DIF reserve ratio is at least 1.35 percent instead

of 1.38 percent. The proposal would lessen the likelihood that the application of small bank assessment

credits would be suspended due to small variations in the DIF reserve ratio

ank assessment credits to quarterly deposit insurance assessments (which took place September 30, 2019),

the FDIC would continue to apply such credits as long as the DIF reserve ratio is at least 1.35 percent instead

of 1.38 percent. The proposal would lessen the likelihood that the application of small bank assessment

credits would be suspended due to small variations in the DIF reserve ratio. Thus, the proposal is expected to

create a more stable and predictable application of assessment credits to quarterly deposit insurance

assessments, thereby permitting institutions awarded such credits to better budget for their assessment

expense and the resulting assessment payments. For purposes of the September 30, 2019, Call Report, an

institution awarded small bank assessment credits may offset (i.e., reduce) the deposit insurance assessment

expense it has accrued for the third quarter of 2019 by the remaining amount of its assessment credits or its

assessment expense for the quarter, whichever is less, and include the net amount in its Call Report in

Schedule RI, item 7.d, and, if applicable, Schedule RI-E, item 2.g.

Reporting High Volatility Commercial Real Estate (HVCRE) Exposures

Section 214 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which

was enacted on May 24, 2018, adds a new Section 51 to the Federal Deposit Insurance Act governing the

risk-based capital requirements for certain acquisition, development, or construction (ADC) loans. EGRRCPA

provides that, effective upon enactment, the banking agencies may only require a depository institution to

assign a heightened risk weight to an HVCRE exposure if such exposure is an “HVCRE ADC Loan,” as

defined in this new law

ection 51 to the Federal Deposit Insurance Act governing the

risk-based capital requirements for certain acquisition, development, or construction (ADC) loans. EGRRCPA

provides that, effective upon enactment, the banking agencies may only require a depository institution to

assign a heightened risk weight to an HVCRE exposure if such exposure is an “HVCRE ADC Loan,” as

defined in this new law. Accordingly, an institution is permitted to risk weight at 150 percent only those

commercial real estate exposures it believes meet the statutory definition of an “HVCRE ADC Loan.” When

reporting HVCRE exposures in the Call Report regulatory capital schedule (Schedule RC-R) as of June 30,

2018, and subsequent report dates, institutions may use available information to reasonably estimate and

report only “HVCRE ADC Loans” held for sale and held for investment in Schedule RC-R, Part II, items 4.b

and 5.b, respectively. Any “HVCRE ADC Loans” held for trading would be reported in Schedule RC-R, Part II,

item 7. The portion of any “HVCRE ADC Loan” that is secured by collateral or has a guarantee that qualifies

for a risk weight lower than 150 percent may continue to be assigned a lower risk weight when completing

Schedule RC-R, Part II. Institutions may refine their estimates of “HVCRE ADC Loans” in good faith as they

obtain additional information, but they will not be required to amend Call Reports previously filed for report

dates on or after June 30, 2018, as these estimates are adjusted.

ies

for a risk weight lower than 150 percent may continue to be assigned a lower risk weight when completing

Schedule RC-R, Part II. Institutions may refine their estimates of “HVCRE ADC Loans” in good faith as they

obtain additional information, but they will not be required to amend Call Reports previously filed for report

dates on or after June 30, 2018, as these estimates are adjusted.

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

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Alternatively, institutions may continue to report and risk weight HVCRE exposures in a manner consistent

with the current Call Report instructions for Schedule RC-R, Part II, until the agencies take further action.

For more detail, see the agencies’ proposal to amend their regulatory capital rules to revise the definition of an

HVCRE exposure to conform to the statutory definition of an “HVCRE ADC loan,” which was published on

September 28, 2018. On July 23, 2019, the agencies published a second proposal on additional elements of

the proposed revised definition of “HVCRE ADC loan.”

Section 214 of EGRRCPA, which includes the definition of “HVCRE ADC Loan,” is provided in the Appendix to

these Supplemental Instructions for your reference.

Goodwill Impairment Testing

In January 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-04, “Simplifying the Test for

Goodwill Impairment,” to address concerns over the cost and complexity of the two-step goodwill impairment

test in Accounting Standards Codification (ASC) Subtopic 350-20, Intangibles‒Goodwill and Other ‒ Goodwill,

that applies to an entity that has not elected the private company alternative for goodwill (which is discussed in

the Glossary entry for “Goodwill” in the Call Report instructions). Thus, the ASU simplifies the subsequent

measurement of goodwill by eliminating the second step from the test, which involves the computation of the

implied fair value of a reporting unit’s goodwill

er ‒ Goodwill,

that applies to an entity that has not elected the private company alternative for goodwill (which is discussed in

the Glossary entry for “Goodwill” in the Call Report instructions). Thus, the ASU simplifies the subsequent

measurement of goodwill by eliminating the second step from the test, which involves the computation of the

implied fair value of a reporting unit’s goodwill. Instead, under the ASU, when an entity tests goodwill for

impairment, which must take place at least annually, the entity should compare the fair value of a reporting unit

with its carrying amount. In general, the entity should recognize an impairment charge for the amount, if any,

by which the reporting unit’s carrying amount exceeds its fair value. However, the loss recognized should not

exceed the total amount of goodwill allocated to that reporting unit. This one-step approach to assessing

goodwill impairment applies to all reporting units, including those with a zero or negative carrying amount.

An entity retains the option to perform the qualitative assessment for a reporting unit described in ASC

Subtopic 350-20 to determine whether it is necessary to perform the quantitative goodwill impairment test.

For an institution that is a public business entity and is also a U.S. Securities and Exchange Commission

(SEC) filer, as both terms are defined in U.S. generally accepted accounting principles (GAAP), the ASU is

effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. For a public

business entity that is not an SEC filer, the ASU is effective for goodwill impairment tests in fiscal years

beginning after December 15, 2020. For all other institutions, the ASU is effective for goodwill impairment

tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for goodwill impairment

tests performed on testing dates after January 1, 2017

For a public

business entity that is not an SEC filer, the ASU is effective for goodwill impairment tests in fiscal years

beginning after December 15, 2020. For all other institutions, the ASU is effective for goodwill impairment

tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for goodwill impairment

tests performed on testing dates after January 1, 2017. For Call Report purposes, an institution should apply

the provisions of ASU 2017-04 to goodwill impairment tests on a prospective basis in accordance with the

applicable effective date of the ASU. An institution that early adopts ASU 2017-04 for U.S. GAAP financial

reporting purposes should early adopt the ASU in the same period for Call Report purposes.

For additional information, institutions should refer to ASU 2017-04, which is available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168778106&acceptedDisclaimer=true.

Accounting and Reporting Implications of the Tax Cuts and Jobs Act

On January 18, 2018, the banking agencies issued an Interagency Statement on Accounting and Reporting

Implications of the New Tax Law. The tax law was enacted on December 22, 2017, and is commonly known

as the Tax Cuts and Jobs Act (the Act). U.S. GAAP requires the effect of changes in tax laws or rates to be

recognized in the period in which the legislation is enacted. Thus, in accordance with ASC Topic 740, Income

Taxes, the effects of the Act were to be recorded in an institution’s Call Report for December 31, 2017,

because the Act was enacted before year-end 2017. Changes in deferred tax assets (DTAs) and deferred tax

liabilities (DTLs) resulting from the Act’s lower corporate income tax rate and other applicable provisions of the

Act were to be reflected in an institution’s income tax expense in the period of enactment, i.e., the year-end

2017 Call Report

nstitution’s Call Report for December 31, 2017,

because the Act was enacted before year-end 2017. Changes in deferred tax assets (DTAs) and deferred tax

liabilities (DTLs) resulting from the Act’s lower corporate income tax rate and other applicable provisions of the

Act were to be reflected in an institution’s income tax expense in the period of enactment, i.e., the year-end

2017 Call Report. Institutions should refer to the Interagency Statement for guidance on the remeasurement

of DTAs and DTLs, assessing the need for valuation allowances for DTAs, the effect of the remeasurement of

DTAs and DTLs on amounts recognized in accumulated other comprehensive income (AOCI), the use for Call

Report purposes of the measurement period approach described in the Securities and Exchange

Commission’s Staff Accounting Bulletin No. 118 and a related FASB Staff Q&A, and regulatory capital effects

of the new tax law.

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

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The Interagency Statement notes that the remeasurement of the DTA or DTL associated with an item reported

in AOCI, such as unrealized gains (losses) on available-for-sale (AFS) securities, results in a disparity

between the tax effect of the item included in AOCI and the amount recorded as a DTA or DTL for the tax

effect of this item. However, when the new tax law was enacted, ASC Topic 740 did not specify how this

disproportionate, or “stranded,” tax effect should be resolved. On February 18, 2018, the FASB issued

ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,”

which allows institutions to eliminate the stranded tax effects resulting from the Act by electing to reclassify

these tax effects from AOCI to retained earnings. Thus, this reclassification is permitted, but not required.

ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods

within those fiscal years

ed Other Comprehensive Income,”

which allows institutions to eliminate the stranded tax effects resulting from the Act by electing to reclassify

these tax effects from AOCI to retained earnings. Thus, this reclassification is permitted, but not required.

ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods

within those fiscal years. Early adoption of the ASU is permitted, including in any interim period, as specified

in the ASU. An institution electing to reclassify its stranded tax effects for U.S. GAAP financial reporting

purposes should also reclassify these stranded tax effects in the same period for Call Report purposes. For

additional information, institutions should refer to ASU 2018-02, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176170041017&acceptedDisclaimer=true.

An institution that elects to reclassify the disproportionate, or stranded, tax effects of items within AOCI to

retained earnings should not report any amounts associated with this reclassification in Call Report

Schedule RI-A, Changes in Bank Equity Capital, because the reclassification is between two accounts within

the equity capital section of Schedule RC, Balance Sheet, and does not result in any change in the total

amount of equity capital.

When discussing the regulatory capital effects of the new tax law, the Interagency Statement explains that

temporary difference DTAs that could be realized through net operating loss (NOL) carrybacks are treated

differently from those that could not be realized through NOL carrybacks (i.e., those for which realization

depends on future taxable income) under the agencies’ regulatory capital rules. These latter temporary

difference DTAs are deducted from common equity tier 1 (CET1) capital if they exceed certain CET1 capital

deduction thresholds

d through net operating loss (NOL) carrybacks are treated

differently from those that could not be realized through NOL carrybacks (i.e., those for which realization

depends on future taxable income) under the agencies’ regulatory capital rules. These latter temporary

difference DTAs are deducted from common equity tier 1 (CET1) capital if they exceed certain CET1 capital

deduction thresholds. However, for tax years beginning on or after January 1, 2018, the Act generally

removes the ability to use NOL carrybacks to recover federal income taxes paid in prior tax years. Thus,

except as noted in the following sentence, for such tax years, the realization of all federal temporary difference

DTAs will be dependent on future taxable income and these DTAs would be subject to the CET1 capital

deduction thresholds. Nevertheless, consistent with current practice under the regulatory capital rules, when

an institution has paid federal income taxes for the current tax year, if all federal temporary differences were to

fully reverse as of the report date during the current tax year and create a hypothetical federal tax loss that

would enable the institution to recover federal income taxes paid in the current tax year, the federal temporary

difference DTAs that could be realized from this source may be treated as temporary difference DTAs

realizable through NOL carrybacks as of the regulatory capital calculation date.

Presentation of Net Benefit Cost in the Income Statement

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost

and Net Periodic Postretirement Benefit Cost,” which requires an employer to disaggregate the service cost

component from the other components of the net benefit cost of defined benefit plans

ulatory capital calculation date.

Presentation of Net Benefit Cost in the Income Statement

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost

and Net Periodic Postretirement Benefit Cost,” which requires an employer to disaggregate the service cost

component from the other components of the net benefit cost of defined benefit plans. In addition, the ASU

requires these other cost components to be presented in the income statement separately from the service

cost component, which must be reported with the other compensation costs arising during the reporting period.

For institutions that are public business entities, as defined under U.S. GAAP, ASU 2017-07 is currently in

effect. For institutions that are not public business entities (i.e., that are private companies), the ASU is

effective for fiscal years beginning after December 15, 2018, and interim periods beginning after December 15,

2019. Early adoption is permitted as described in the ASU. Refer to the Glossary entries for “public business

entity” and “private company” in the Call Report instructions for further information on these terms.

For Call Report purposes, an institution should apply the new standard prospectively to the cost components

of net benefit cost as of the beginning of the fiscal year of adoption. The service cost component of net benefit

cost should be reported in Schedule RI, item 7.a, “Salaries and employee benefits.” The other cost

components of net benefit cost should be reported in Schedule RI, item 7.d, “Other noninterest expense.”

For additional information, institutions should refer to ASU 2017-07, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168888120&acceptedDisclaimer=true.

st should be reported in Schedule RI, item 7.a, “Salaries and employee benefits.” The other cost

components of net benefit cost should be reported in Schedule RI, item 7.d, “Other noninterest expense.”

For additional information, institutions should refer to ASU 2017-07, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168888120&acceptedDisclaimer=true.

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

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Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,”

which introduces the current expected credit losses methodology (CECL) for estimating allowances for credit

losses. Under CECL, an allowance for credit losses is a valuation account, measured as the difference

between the financial assets’ amortized cost basis and the net amount expected to be collected on the

financial assets (i.e., lifetime credit losses). To estimate expected credit losses under CECL, institutions will

use a broader range of data than under existing U.S. GAAP. These data include information about past

events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability

of the cash flows of financial assets.

The ASU is applicable to all financial instruments measured at amortized cost (including loans held for

investment and held-to-maturity debt securities, as well as trade receivables, reinsurance recoverables, and

receivables that relate to repurchase agreements and securities lending agreements), a lessor’s net

investments in leases, and off-balance-sheet credit exposures not accounted for as insurance, including loan

commitments, standby letters of credit, and financial guarantees. The new standard does not apply to trading

assets, loans held for sale, financial assets for which the fair value option has been elected, or loans and

receivables between entities under common control

s), a lessor’s net

investments in leases, and off-balance-sheet credit exposures not accounted for as insurance, including loan

commitments, standby letters of credit, and financial guarantees. The new standard does not apply to trading

assets, loans held for sale, financial assets for which the fair value option has been elected, or loans and

receivables between entities under common control.

The ASU also modifies the treatment of credit impairment on AFS debt securities. Under the new standard,

institutions will recognize a credit loss on an AFS debt security through an allowance for credit losses, rather

than the current practice required by U.S. GAAP of write-downs of individual securities for other-than-

temporary impairment.

At present, for institutions that are public business entities and also are U.S. Securities and Exchange

Commission (SEC) filers, as both terms are defined in U.S. GAAP, the ASU is effective for fiscal years

beginning after December 15, 2019, including interim periods within those fiscal years. For public business

entities that are not SEC filers, the ASU currently is effective for fiscal years beginning after December 15,

2020, including interim periods within those fiscal years. For institutions that are not public business entities

(i.e., that are private companies), ASU 2016-13 currently is effective for fiscal years beginning after

December 15, 2021, including interim periods within those fiscal years. For all institutions, early application of

the new standard is permitted for fiscal years beginning after December 15, 2018, including interim periods

within those fiscal years. However, on August 15, 2019, the FASB proposed to defer the effective dates of

ASU 2016-13 for certain institutions. As proposed, for SEC filers that are not “smaller reporting companies,”

as defined in the SEC’s rules, ASU 2016-13 would continue to be effective for fiscal years beginning after

December 15, 2019, including interim periods within those fiscal years

within those fiscal years. However, on August 15, 2019, the FASB proposed to defer the effective dates of

ASU 2016-13 for certain institutions. As proposed, for SEC filers that are not “smaller reporting companies,”

as defined in the SEC’s rules, ASU 2016-13 would continue to be effective for fiscal years beginning after

December 15, 2019, including interim periods within those fiscal years. For all other entities (including those

SEC filers that are smaller reporting companies), the FASB has proposed that ASU 2016-13 would be

effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years,

i.e., January 1, 2023, for such entities with calendar year fiscal years.

Institutions must apply ASU 2016-13 for Call Report purposes in accordance with the effective dates set forth

in the ASU subject to any amendments that may be made by the FASB. An institution that early adopts

ASU 2016-13 for U.S. GAAP financial reporting purposes should also early adopt the ASU in the same period

for Call Report purposes.

The agencies revised several Call Report schedules as of the March 31, 2019, report date in response to the

revised accounting for credit losses under ASU 2016-13 (see FIL-10-2019, dated March 6, 2019). The

Call Report revisions also included reporting changes to Call Report Schedule RC-R, Regulatory Capital, to

align the schedule with the agencies’ final rule that amends their regulatory capital rule for the implementation

of and capital transition for CECL. This final capital rule for CECL was published on February 14, 2019

t losses under ASU 2016-13 (see FIL-10-2019, dated March 6, 2019). The

Call Report revisions also included reporting changes to Call Report Schedule RC-R, Regulatory Capital, to

align the schedule with the agencies’ final rule that amends their regulatory capital rule for the implementation

of and capital transition for CECL. This final capital rule for CECL was published on February 14, 2019.

For additional information, institutions should refer to the agencies’ Frequently Asked Questions on the New

Accounting Standard on Financial Instruments – Credit Losses, which were most recently updated on April 3,

2019; the agencies’ June 17, 2016, Joint Statement on the New Accounting Standard on Financial Instruments

– Credit Losses; and ASU 2016-13, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168232528&acceptedDisclaimer=true.

Since the issuance of ASU 2016-13, the FASB has published the following amendments to the new credit

losses accounting standard: ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments—

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

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Credit Losses,” which is available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176171644373&acceptedDisclaimer=true;

ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815,

Derivatives and Hedging, and Topic 825, Financial Instruments,” which is available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176172541591&acceptedDisclaimer=true;

and ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief,” which is

available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176172668879&acceptedDisclaimer=true.

Accounting for Hedging Activities

In August 2017, the FASB issued ASU No

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176172541591&acceptedDisclaimer=true;

and ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief,” which is

available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176172668879&acceptedDisclaimer=true.

Accounting for Hedging Activities

In August 2017, the FASB issued ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging

Activities.” This ASU amends ASC Topic 815, Derivatives and Hedging, to “better align an entity’s risk

management activities and financial reporting for hedging relationships through changes to both the

designation and measurement guidance for qualifying hedging relationships and the presentation of hedge

results.”

For institutions that are public business entities, as defined under U.S. GAAP, the ASU is effective for fiscal

years beginning after December 15, 2018, including interim periods within those fiscal years. For institutions

that are not public business entities (i.e., that are private companies), the ASU currently is effective for fiscal

years beginning after December 15, 2019, and interim periods within fiscal years beginning after December

15, 2020. However, on August 15, 2019, the FASB proposed to defer the effective date of ASU 2017-12 by

one year for entities that are not public business entities. As proposed, the ASU would be effective for such

entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning

after December 15, 2021.

Early application of the ASU is permitted for all institutions in any interim period or fiscal year before the

effective date of the ASU

by

one year for entities that are not public business entities. As proposed, the ASU would be effective for such

entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning

after December 15, 2021.

Early application of the ASU is permitted for all institutions in any interim period or fiscal year before the

effective date of the ASU. Further, the ASU specifies transition requirements and offers transition elections for

hedging relationships existing on the date of adoption (i.e., hedging relationships in which the hedging

instrument has not expired, been sold, terminated, or exercised or for which the institution has not removed

the designation of the hedging relationship). These transition requirements and elections should be applied on

the date of adoption of the ASU and the effect of adoption should be reflected as of the beginning of the fiscal

year of adoption (i.e., the initial application date). Thus, if an institution early adopts the ASU in an interim

period, any adjustments shall be reflected as of the beginning of the fiscal year that includes the interim period

of adoption, e.g., as of January 1 for a calendar year institution. An institution that early adopts ASU 2017-12

in an interim period for U.S. GAAP financial reporting purposes should also early adopt the ASU in the same

period for Call Report purposes.

The Call Report instructions, including the Glossary entry for “Derivative Contracts,” will be revised to conform

to the ASU at a future date.

For additional information, institutions should refer to ASU 2017-12, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176169282347&acceptedDisclaimer=true.

Recognition and Measurement of Financial Instruments: Investments in Equity Securities

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and

Financial Liabilities.” This ASU makes targeted improvements to U.S. GAAP

ASU 2017-12, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176169282347&acceptedDisclaimer=true.

Recognition and Measurement of Financial Instruments: Investments in Equity Securities

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and

Financial Liabilities.” This ASU makes targeted improvements to U.S. GAAP. As one of its main provisions,

the ASU requires investments in equity securities, except those accounted for under the equity method and

those that result in consolidation, to be measured at fair value with changes in fair value recognized in net

income. Thus, the ASU eliminates the existing concept of AFS equity securities, which are measured at

fair value with changes in fair value generally recognized in other comprehensive income. To be classified

as AFS under current U.S. GAAP, an equity security must have a readily determinable fair value and not be

held for trading. In addition, for an equity security that does not have a readily determinable fair value, the

ASU permits an entity to elect to measure the security at cost minus impairment, if any, plus or minus changes

resulting from observable price changes in orderly transactions for the identical or a similar investment of the

same issuer. When this election is made for an equity security without a readily determinable fair value, the

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

7

ASU simplifies the impairment assessment of such an investment by requiring a qualitative assessment to

identify impairment.

The ASU’s measurement guidance for investments in equity securities also applies to other ownership

interests, such as interests in partnerships, unincorporated joint ventures, and limited liability companies.

However, the measurement guidance does not apply to Federal Home Loan Bank stock and Federal Reserve

Bank stock.

For institutions that are public business entities, as defined under U.S

e ASU’s measurement guidance for investments in equity securities also applies to other ownership

interests, such as interests in partnerships, unincorporated joint ventures, and limited liability companies.

However, the measurement guidance does not apply to Federal Home Loan Bank stock and Federal Reserve

Bank stock.

For institutions that are public business entities, as defined under U.S. GAAP, ASU 2016-01 is currently in

effect. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2018, and

interim periods within fiscal years beginning after December 15, 2019. Early application of the ASU is

permitted for all institutions that are not public business entities as described in the ASU. Institutions must

apply ASU 2016-01 for Call Report purposes in accordance with the effective dates set forth in the ASU.

Institutions with a calendar year fiscal year that are not public business entities (and did not early adopt ASU

2016-01) must first report their investments in equity securities in accordance with the ASU in the Call Report

for December 31, 2019.

With the elimination of AFS equity securities upon an institution’s adoption of ASU 2016-01, the amount of

net unrealized gains (losses) on these securities, net of tax effect, that is included in AOCI on the Call Report

balance sheet (Schedule RC, item 26.b) as of the adoption date will be reclassified (transferred) from AOCI

into the retained earnings component of equity capital on the balance sheet (Schedule RC, item 26.a). For an

institution with a calendar year fiscal year that is not a public business entity (and did not early adopt ASU

2016-01), the adoption date is January 1, 2019. Thereafter, changes in the fair value of (i.e., the unrealized

gains and losses on) an institution’s equity securities that would have been classified as AFS under previous

U.S. GAAP will be recognized through net income rather than other comprehensive income (OCI)

year fiscal year that is not a public business entity (and did not early adopt ASU

2016-01), the adoption date is January 1, 2019. Thereafter, changes in the fair value of (i.e., the unrealized

gains and losses on) an institution’s equity securities that would have been classified as AFS under previous

U.S. GAAP will be recognized through net income rather than other comprehensive income (OCI). For an

institution’s holdings of equity securities without readily determinable fair values as of the adoption date for

which the measurement alternative is elected, the measurement provisions of the ASU are to be applied

prospectively to these securities.

For additional information, institutions should refer to ASU 2016-01, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176167762170&acceptedDisclaimer=true.

Institutions may also refer to the Glossary entry for “Securities Activities” in the Call Report instruction books,

which has been updated this quarter in response to the changes in the accounting for investments in equity

securities summarized above.

Recognition and Measurement of Financial Instruments: Fair Value Option Liabilities

In addition to the changes in the accounting for equity securities discussed in the preceding section of these

Supplemental Instructions, ASU 2016-01 requires an institution to present separately in OCI the portion of the

total change in the fair value of a liability resulting from a change in the instrument-specific credit risk

(“own credit risk”) when the institution has elected to measure the liability at fair value in accordance with the

fair value option for financial instruments. Until an institution adopts the own credit risk provisions of the ASU,

U.S. GAAP requires the institution to report the entire change in the fair value of a fair value option liability in

earnings. The ASU does not apply to other financial liabilities measured at fair value, including derivatives

e the liability at fair value in accordance with the

fair value option for financial instruments. Until an institution adopts the own credit risk provisions of the ASU,

U.S. GAAP requires the institution to report the entire change in the fair value of a fair value option liability in

earnings. The ASU does not apply to other financial liabilities measured at fair value, including derivatives.

For these other financial liabilities, the effect of a change in an entity’s own credit risk will continue to be

reported in net income.

The change due to own credit risk, as described above, is the difference between the total change in fair value

and the amount resulting from a change in a base market rate (e.g., a risk-free interest rate). An institution

may use another method that it believes results in a faithful measurement of the fair value change attributable

to instrument-specific credit risk. However, it will have to apply the method consistently to each financial

liability from period to period.

The effective dates of ASU 2016-01 are described in the preceding section of these Supplemental Instructions.

Notwithstanding these effective dates, early application of the ASU’s provisions regarding the presentation in

OCI of changes due to own credit risk on fair value option liabilities is permitted for all entities for financial

statements of fiscal years or interim periods that have not yet been issued or made available for issuance, and

in the same period for Call Report purposes.

nstructions.

Notwithstanding these effective dates, early application of the ASU’s provisions regarding the presentation in

OCI of changes due to own credit risk on fair value option liabilities is permitted for all entities for financial

statements of fiscal years or interim periods that have not yet been issued or made available for issuance, and

in the same period for Call Report purposes.

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

8

When an institution with a calendar year fiscal year adopts the own credit risk provisions of ASU 2016-01, the

accumulated gains and losses as of the beginning of the fiscal year due to changes in the instrument-specific

credit risk of fair value option liabilities, net of tax effect, are reclassified from Schedule RC, item 26.a,

“Retained earnings,” to Schedule RC, item 26.b, “Accumulated other comprehensive income.” If an institution

with a calendar year fiscal year chooses to early apply the ASU’s provisions for fair value option liabilities in an

interim period after the first interim period of its fiscal year, any unrealized gains and losses due to changes in

own credit risk and the related tax effects recognized in the Call Report income statement during the interim

period(s) before the interim period of adoption should be reclassified from earnings to OCI. In the Call Report,

this reclassification would be from Schedule RI, item 5.l, “Other noninterest income,” and Schedule RI, item 9,

“Applicable income taxes,” to Schedule RI-A, item 10, “Other comprehensive income,” with a corresponding

reclassification from Schedule RC, item 26.a, to Schedule RC, item 26.b

d(s) before the interim period of adoption should be reclassified from earnings to OCI. In the Call Report,

this reclassification would be from Schedule RI, item 5.l, “Other noninterest income,” and Schedule RI, item 9,

“Applicable income taxes,” to Schedule RI-A, item 10, “Other comprehensive income,” with a corresponding

reclassification from Schedule RC, item 26.a, to Schedule RC, item 26.b.

Additionally, for purposes of reporting on Schedule RC-R, Part I, institutions should report in item 10.a, “Less:

Unrealized net gain (loss) related to changes in the fair value of liabilities that are due to changes in own credit

risk,” the amount included in AOCI attributable to changes in the fair value of fair value option liabilities that are

due to changes in the institution’s own credit risk. Institutions should note that this AOCI amount is included in

the amount reported in Schedule RC-R, Part I, item 3, “Accumulated other comprehensive income (AOCI).”

For additional information, institutions should refer to ASU 2016-01, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176167762170&acceptedDisclaimer=true.

In addition, the instructions for certain data items in Schedules RI, RI-A, and RC have been updated this

quarter in response to the change in accounting for own credit risk on fair value option liabilities.

New Revenue Recognition Accounting Standard

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which added

ASC Topic 606, Revenue from Contracts with Customers. The core principle of Topic 606 is that an entity

should recognize revenue at an amount that reflects the consideration to which it expects to be entitled

in exchange for transferring goods or services to a customer as part of the entity’s ordinary activities.

ASU 2014-09 also added Topic 610, Other Income, to the ASC

tomers,” which added

ASC Topic 606, Revenue from Contracts with Customers. The core principle of Topic 606 is that an entity

should recognize revenue at an amount that reflects the consideration to which it expects to be entitled

in exchange for transferring goods or services to a customer as part of the entity’s ordinary activities.

ASU 2014-09 also added Topic 610, Other Income, to the ASC. Topic 610 applies to income recognition that

is not within the scope of Topic 606, other Topics (such as Topic 840 on leases), or other revenue or income

guidance. As discussed in the following section of these Supplemental Instructions, Topic 610 applies to an

institution’s sales of repossessed nonfinancial assets, such as other real estate owned (OREO). The sale of

repossessed nonfinancial assets is not considered an “ordinary activity” because institutions do not typically

invest in nonfinancial assets. ASU 2014-09 and subsequent amendments are collectively referred to herein

as the “new standard.” For additional information on this accounting standard and the revenue streams to

which it does and does not apply, please refer to the Glossary entry for “Revenue from Contracts with

Customers,” which was included in the Call Report instruction book updates for September 2018.

For institutions that are public business entities, as defined under U.S. GAAP, the new standard is currently in

effect. For institutions that are not public business entities (i.e., that are private companies), the new standard

is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within fiscal years

beginning after December 15, 2019. Early application of the new standard is permitted as described in the

standard. Institutions that are private companies with a calendar year fiscal year (that did not early adopt the

new standard) must first report revenue in accordance with the standard in the Call Report for December 31,

2019

er 15, 2018, and interim reporting periods within fiscal years

beginning after December 15, 2019. Early application of the new standard is permitted as described in the

standard. Institutions that are private companies with a calendar year fiscal year (that did not early adopt the

new standard) must first report revenue in accordance with the standard in the Call Report for December 31,

2019.

An institution that early adopts the new standard must apply it in its entirety. The institution cannot choose to

apply the guidance to some revenue streams and not to others that are within the scope of the new standard.

If an institution chooses to early adopt the new standard for financial reporting purposes, the institution should

implement the new standard in its Call Report for the same quarter-end report date.

For Call Report purposes, an institution must apply the new standard on a modified retrospective basis as of

the effective date of the standard. Under the modified retrospective method, an institution should apply a

cumulative-effect adjustment to affected accounts existing as of the beginning of the fiscal year the new

standard is first adopted for Call Report purposes (i.e., as of January 1, 2019, for an institution that is a private

company with a calendar year fiscal year that did not early adopt the new standard). The cumulative-effect

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

9

adjustment to retained earnings for this change in accounting principle should be reported in Call Report

Schedule RI-A, item 2.

For additional information, institutions should refer to the new standard, which is available at

http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498.

Revenue Recognition: Accounting for Sales of OREO

As stated in the preceding section, Topic 610 applies to an institution’s sale of repossessed nonfinancial

assets, such as OREO

eported in Call Report

Schedule RI-A, item 2.

For additional information, institutions should refer to the new standard, which is available at

http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498.

Revenue Recognition: Accounting for Sales of OREO

As stated in the preceding section, Topic 610 applies to an institution’s sale of repossessed nonfinancial

assets, such as OREO. When the new standard becomes effective at the dates discussed above, Topic 610

will eliminate the prescriptive criteria and methods for sale accounting and gain recognition for dispositions of

OREO currently set forth in Subtopic 360-20, Property, Plant, and Equipment – Real Estate Sales. Under the

new standard, an institution will recognize the entire gain or loss, if any, and derecognize the OREO at the

time of sale if the transaction meets certain requirements of Topic 606. Otherwise, an institution will generally

record any payments received as a deposit liability to the buyer and continue reporting the OREO as an asset

at the time of the transaction.

The following paragraphs highlight key aspects of Topic 610 that will apply to seller-financed sales of OREO

once the new standard takes effect. When implementing the new standard, an institution will need to exercise

judgment in determining whether a contract (within the meaning of Topic 606) exists for the sale or transfer of

OREO, whether the institution has performed its obligations identified in the contract, and what the transaction

price is for calculation of the amount of gain or loss. For additional information, please refer to the Glossary

entry for “Foreclosed Assets” in the Call Report instruction books, which was updated in March 2017 to

incorporate guidance on the application of the new standard to sales of OREO

ther the institution has performed its obligations identified in the contract, and what the transaction

price is for calculation of the amount of gain or loss. For additional information, please refer to the Glossary

entry for “Foreclosed Assets” in the Call Report instruction books, which was updated in March 2017 to

incorporate guidance on the application of the new standard to sales of OREO.

Under Topic 610, when an institution does not have a controlling financial interest in the OREO buyer under

Topic 810, Consolidation, the institution’s first step in assessing whether it can derecognize an OREO asset

and recognize revenue upon the sale or transfer of the OREO is to determine whether a contract exists under

the provisions of Topic 606. In order for a transaction to be a contract under Topic 606, it must meet five

criteria. Although all five criteria require careful analysis for seller-financed sales of OREO, two criteria in

particular may require significant judgment. These criteria are the commitment of the parties to the transaction

to perform their respective obligations and the collectability of the transaction price. To evaluate whether a

transaction meets the collectability criterion, a selling institution must determine whether it is probable that it

will collect substantially all of the consideration to which it is entitled in exchange for the transfer of the OREO,

i.e., the transaction price. To make this determination, as well as the determination that the buyer of the

OREO is committed to perform its obligations, a selling institution should consider all facts and circumstances

related to the buyer’s ability and intent to pay the transaction price. As with the current accounting standards

governing seller-financed sales of OREO, the amount and character of a buyer’s initial equity in the property

(typically the cash down payment) and recourse provisions remain important factors to evaluate

obligations, a selling institution should consider all facts and circumstances

related to the buyer’s ability and intent to pay the transaction price. As with the current accounting standards

governing seller-financed sales of OREO, the amount and character of a buyer’s initial equity in the property

(typically the cash down payment) and recourse provisions remain important factors to evaluate. Other factors

to consider may include, but are not limited to, the financing terms of the loan (including amortization and any

balloon payment), the credit standing of the buyer, the cash flow from the property, and the selling institution’s

continuing involvement with the property following the transaction.

If the five contract criteria in Topic 606 have not been met, the institution generally may not derecognize the

OREO asset or recognize revenue (gain or loss) as an accounting sale has not occurred. In contrast, if an

institution determines the contract criteria in Topic 606 have been met, it must then determine whether it has

satisfied its performance obligations as identified in the contract by transferring control of the asset to the

buyer. For seller-financed sales of OREO, the transfer of control generally occurs on the closing date of the

sale when the institution obtains the right to receive payment for the property and transfers legal title to the

buyer. However, an institution must consider all relevant facts and circumstances to determine whether

control of the OREO has transferred.

When a contract exists and an institution has transferred control of the asset, the institution should

derecognize the OREO asset and recognize a gain or loss for the difference between the transaction price and

the carrying amount of the OREO asset. Generally, the transaction price in a sale of OREO will be the

contract amount in the purchase/sale agreement, including for a seller-financed sale at market terms

ists and an institution has transferred control of the asset, the institution should

derecognize the OREO asset and recognize a gain or loss for the difference between the transaction price and

the carrying amount of the OREO asset. Generally, the transaction price in a sale of OREO will be the

contract amount in the purchase/sale agreement, including for a seller-financed sale at market terms.

However, the transaction price may differ from the amount stated in the contract due to the existence of off-

market terms on the financing. In this situation, to determine the transaction price, the contract amount should

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

10

be adjusted for the time value of money by using as the discount rate a market rate of interest considering the

credit characteristics of the buyer and the terms of the financing.

As stated in the preceding section on the new revenue recognition accounting standard, for Call Report

purposes, an institution must apply the new standard on a modified retrospective basis. To determine the

cumulative-effect adjustment for the change in accounting for seller-financed OREO sales, an institution

should measure the impact of applying Topic 610 to the outstanding seller-financed sales of OREO currently

accounted for under Subtopic 360-20 using the installment, cost recovery, reduced-profit, or deposit method

as of the beginning of the fiscal year the new standard is first adopted for Call Report purposes (i.e., as of

January 1, 2019, for an institution that is a private company with a calendar year fiscal year that did not early

adopt the new standard). The cumulative-effect adjustment to retained earnings for this change in accounting

principle should be reported in Call Report Schedule RI-A, item 2.

Accounting for Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which added ASC Topic 842, Leases. Once

effective, this guidance, as amended by certain subsequent ASUs, supersedes ASC Topic 840, Leases

the new standard). The cumulative-effect adjustment to retained earnings for this change in accounting

principle should be reported in Call Report Schedule RI-A, item 2.

Accounting for Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which added ASC Topic 842, Leases. Once

effective, this guidance, as amended by certain subsequent ASUs, supersedes ASC Topic 840, Leases.

Topic 842 does not fundamentally change lessor accounting; however, it aligns terminology between lessee

and lessor accounting and brings key aspects of lessor accounting into alignment with the FASB’s new

revenue recognition guidance in Topic 606. As a result, the classification difference between direct financing

leases and sales-type leases for lessors moves from a risk-and-rewards principle to a transfer of control

principle. Additionally, there is no longer a distinction in the treatment of real estate and non-real estate leases

by lessors.

The most significant change that Topic 842 makes is to lessee accounting. Under existing accounting

standards, lessees recognize lease assets and lease liabilities on the balance sheet for capital leases, but do

not recognize operating leases on the balance sheet. The lessee accounting model under Topic 842 retains

the distinction between operating leases and capital leases, which the new standard labels finance leases.

However, the new standard requires lessees to record a right-of-use (ROU) asset and a lease liability on the

balance sheet for operating leases. (For finance leases, a lessee’s lease asset also is designated an ROU

asset.) In general, the new standard permits a lessee to make an accounting policy election to exempt leases

with a term of one year or less at their commencement date from on-balance sheet recognition

dard requires lessees to record a right-of-use (ROU) asset and a lease liability on the

balance sheet for operating leases. (For finance leases, a lessee’s lease asset also is designated an ROU

asset.) In general, the new standard permits a lessee to make an accounting policy election to exempt leases

with a term of one year or less at their commencement date from on-balance sheet recognition. The lease

term generally includes the noncancellable period of a lease as well as purchase options and renewal options

reasonably certain to be exercised by the lessee, renewal options controlled by the lessor, and any other

economic incentive for the lessee to extend the lease. An economic incentive may include a related-party

commitment. When preparing to implement Topic 842, lessees will need to analyze their existing lease

contracts to determine the entries to record on adoption of this new standard.

For a sale-leaseback transaction to qualify for sales treatment, Topic 842 requires certain criteria within

Topic 606 to be met. Topic 606 focuses on the transfer of control of the leased asset from the seller/lessee to

the buyer/lessor. A sale-leaseback transaction that does not transfer control is accounted for as a financing

arrangement. For a transaction currently accounted for as a sale-leaseback under existing U.S. GAAP, an

entity is not required to reassess whether the transaction would have qualified as a sale and a leaseback

under Topic 842 when it adopts the new standard.

Leases classified as leveraged leases prior to the adoption of Topic 842 may continue to be accounted for

under Topic 840 unless subsequently modified. Topic 842 eliminates leveraged lease accounting for leases

that commence after an institution adopts the new accounting standard.

For institutions that are public business entities, as defined under U.S. GAAP, ASU 2016-02 is effective for

fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years

der Topic 840 unless subsequently modified. Topic 842 eliminates leveraged lease accounting for leases

that commence after an institution adopts the new accounting standard.

For institutions that are public business entities, as defined under U.S. GAAP, ASU 2016-02 is effective for

fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years.

For institutions that are not public business entities, the new standard currently is effective for fiscal years

beginning after December 15, 2019, and interim reporting periods within fiscal years beginning after

December 15, 2020. Early application of the new standard is permitted for all institutions. However, on

August 15, 2019, the FASB proposed to defer the effective date of ASU 2016-02 by one year for entities that

are not public business entities. As proposed, the ASU would be effective for such entities for fiscal years

beginning after December 15, 2020, and interim reporting periods within fiscal years beginning after

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

11

December 15, 2021. An institution that early adopts the new standard must apply it in its entirety to all lease-

related transactions. If an institution chooses to early adopt the new standard for financial reporting purposes,

the institution should implement the new standard in its Call Report for the same quarter-end report date.

Under ASU 2016-02, an institution must apply the new leases standard on a modified retrospective basis for

financial reporting purposes. Under the modified retrospective method, an institution should apply the leases

standard and the related cumulative-effect adjustments to affected accounts existing as of the beginning of the

earliest period presented in the financial statements

eport date.

Under ASU 2016-02, an institution must apply the new leases standard on a modified retrospective basis for

financial reporting purposes. Under the modified retrospective method, an institution should apply the leases

standard and the related cumulative-effect adjustments to affected accounts existing as of the beginning of the

earliest period presented in the financial statements. However, as explained in the “Changes in accounting

principles” section of the Glossary entry for “Accounting Changes” in the Call Report instructions, when a new

accounting standard (such as the leases standard) requires the use of a retrospective application method,

institutions should instead report the cumulative effect of adopting the new standard on the amount of retained

earnings at the beginning of the year in which the new standard is first adopted for Call Report purposes (net

of applicable income taxes, if any) as a direct adjustment to equity capital in the Call Report. For the adoption

of the new leases standard, the cumulative-effect adjustment to bank equity capital for this change in

accounting principle should be reported in Schedule RI-A, item 2, and disclosed in Schedule RI-E, item 4.b,

“Effect of adoption of lease accounting standard - ASC Topic 842.” In July 2018, the FASB issued

ASU 2018-11, “Targeted Improvements,” which provides an additional and “optional transition method” for

comparative reporting purposes at adoption of the new leases standard. Under this optional transition method,

an institution initially applies the new leases standard at the adoption date (e.g., January 1, 2019, for a public

business entity with a calendar year fiscal year) and, for Call Report purposes, the institution should recognize

and report a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption

consistent with the Glossary instructions described above

n institution initially applies the new leases standard at the adoption date (e.g., January 1, 2019, for a public

business entity with a calendar year fiscal year) and, for Call Report purposes, the institution should recognize

and report a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption

consistent with the Glossary instructions described above.

For Call Report purposes, all ROU assets for operating leases and finance leases, including ROU assets for

operating leases recorded upon adoption of ASU 2016-02, should be reflected in Schedule RC, item 6,

“Premises and fixed assets.”

The agencies have received questions from institutions concerning the reporting of lease liabilities for

operating leases by a bank lessee. These institutions indicated that reporting operating lease liabilities as

other liabilities instead of other borrowings would better align the reporting of the single noninterest expense

item for operating leases (required by the standard and discussed below) with their balance sheet

classification and would be consistent with how these institutions report these lease liabilities internally. The

agencies plan to request public comment on this proposed change in reporting. However, until that process

is complete, the agencies will permit institutions to report the lease liability for operating leases in either

Schedule RC-G, item 4, “All other liabilities,” or Schedule RC-M, item 5.b, “Other borrowings.” If an institution

chooses the latter reporting treatment, the amount of operating lease liabilities reported in Schedule RC-M,

item 5.b, should also be reported in Schedule RC-M, item 10.b, “Amount of ‘Other borrowings’ that are

secured,” consistent with the current Call Report instructions for reporting obligations under capital leases,

and this amount should not be reported in Schedule RC-O, item 7, as “Unsecured ‘Other borrowings’.” An

institution may choose to amend the reporting of operating lease liabilities in it

em 5.b, should also be reported in Schedule RC-M, item 10.b, “Amount of ‘Other borrowings’ that are

secured,” consistent with the current Call Report instructions for reporting obligations under capital leases,

and this amount should not be reported in Schedule RC-O, item 7, as “Unsecured ‘Other borrowings’.” An

institution may choose to amend the reporting of operating lease liabilities in its Call Reports for March 31

and June 30, 2019, consistent with this supplemental instruction. The agencies do not plan to make any

changes to the reporting for a lessee’s finance leases, the lease liabilities for which should be reported in

Schedule RC-M, items 5.b and 10.b.

Regardless of a lessee institution’s balance sheet treatment of operating lease liabilities, a lessee should

report a single lease cost for an operating lease in the Call Report income statement, calculated so that the

cost of the lease is allocated over the lease term on a generally straight-line basis, in Schedule RI, item 7.b,

“Expenses of premises and fixed assets.” For a finance lease, a lessee should report interest expense on the

lease liability separately from the amortization expense on the ROU asset. The interest expense should be

reported on Schedule RI in item 2.c, “Other interest expense,” on the FFIEC 051 and in item 2.c, “Interest on

trading liabilities and other borrowed money,” on the FFIEC 031 and the FFIEC 041. The amortization

expense should be reported on Schedule RI in item 7.b, “Expenses of premises and fixed assets.”

The agencies have also received questions regarding how lessee institutions should treat ROU assets under

the agencies’ regulatory capital rules (12 CFR Part 3 (OCC); 12 CFR Part 217 (Board); and 12 CFR Part 324

(FDIC)). Those rules require that most intangible assets be deducted from regulatory capital. However, some

institutions are uncertain whether ROU assets are intangible assets

ts.”

The agencies have also received questions regarding how lessee institutions should treat ROU assets under

the agencies’ regulatory capital rules (12 CFR Part 3 (OCC); 12 CFR Part 217 (Board); and 12 CFR Part 324

(FDIC)). Those rules require that most intangible assets be deducted from regulatory capital. However, some

institutions are uncertain whether ROU assets are intangible assets. The agencies are clarifying that, to the

extent an ROU asset arises due to a lease of a tangible asset (e.g., building or equipment), the ROU asset

should be treated as a tangible asset not subject to deduction from regulatory capital. An ROU asset not

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

12

subject to deduction must be risk weighted at 100 percent under Section 32(l)(5) of the agencies’ regulatory

capital rules and included in a lessee institution’s calculations of total risk-weighted assets. In addition, such

an asset must be included in a lessee institution’s total assets for leverage capital purposes. The agencies

believe this treatment is consistent with the current treatment of capital leases under the rules, whereby a

lessee’s lease assets under capital leases of tangible assets are treated as tangible assets, receive a

100 percent risk weight, and are included in the leverage ratio denominator. This treatment is also consistent

with the approach taken by the Basel Committee on Banking Supervision

(https://www.bis.org/press/p170406a.htm).

For additional information on ASU 2016-02, institutions should refer to the FASB’s website at:

http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FCompl

etedProjectPage&cid=1176167904031, which includes a link to the new accounting standard

nsistent

with the approach taken by the Basel Committee on Banking Supervision

(https://www.bis.org/press/p170406a.htm).

For additional information on ASU 2016-02, institutions should refer to the FASB’s website at:

http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FCompl

etedProjectPage&cid=1176167904031, which includes a link to the new accounting standard.

Amending Previously Submitted Report Data

Should your institution find that it needs to revise previously submitted Call Report data, please make the

appropriate changes to the data, ensure that the revised data passes the FFIEC-published validation criteria,

and submit the revised data file to the CDR using one of the two methods described in the banking agencies'

FIL for the June 30, 2019, report date. For technical assistance with the submission of amendments to the

CDR, please contact the CDR Help Desk by telephone at (888) CDR-3111, by fax at (703) 774-3946, or by

e-mail at CDR.Help@ffiec.gov.

Other Reporting Matters

For the following topics, institutions should continue to follow the guidance in the specified Call Report

Supplemental Instructions:

•

“Purchased” Loans Originated By Others – Supplemental Instructions for September 30, 2015

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201509.pdf)

•

True-up Liability under an FDIC Loss-Sharing Agreement – Supplemental Instructions for June 30, 2015

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201506.pdf)

•

Troubled Debt Restructurings, Current Market Interest Rates, and ASU No. 2011-02 – Supplemental

Instructions for December 31, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201412.pdf)

•

Determining the Fair Value of Derivatives – Supplemental Instructions for June 30, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201406.pdf)

•

Indemnification Assets and ASU No

ucturings, Current Market Interest Rates, and ASU No. 2011-02 – Supplemental

Instructions for December 31, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201412.pdf)

•

Determining the Fair Value of Derivatives – Supplemental Instructions for June 30, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201406.pdf)

•

Indemnification Assets and ASU No. 2012-06 – Supplemental Instructions for June 30, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201406.pdf)

•

Other-Than-Temporary Impairment of Debt Securities – Supplemental Instructions for June 30, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201406.pdf)

•

Small Business Lending Fund – Supplemental Instructions for March 31, 2013

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201303.pdf)

•

Reporting Purchased Subordinated Securities in Schedule RC-S – Supplemental Instructions for

September 30, 2011

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201109.pdf)

•

Treasury Department’s Capital Purchase Program – Supplemental Instructions for September 30, 2011

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201109.pdf)

•

Deposit insurance assessments – Supplemental Instructions for September 30, 2009

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200909.pdf)

•

Accounting for share-based payments under FASB Statement No. 123 (Revised 2004), Share-Based

Payment – Supplemental Instructions for December 31, 2006

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200612.pdf)

•

Commitments to originate and sell mortgage loans – Supplemental Instructions for March 31, 2006

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200603.pdf) and June 30, 2005

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200506.pdf)

ent – Supplemental Instructions for December 31, 2006

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200612.pdf)

•

Commitments to originate and sell mortgage loans – Supplemental Instructions for March 31, 2006

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200603.pdf) and June 30, 2005

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200506.pdf)

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

13

Call Report Software Vendors

For information on available Call Report preparation software products, institutions should contact:

Axiom Software Laboratories, Inc.

67 Wall Street, 17th Floor

New York, New York 10005

Telephone: (212) 248-4188

http://www.axiomsl.com

DBI Financial Systems, Inc.

P.O. Box 14027

Bradenton, Florida 34280

Telephone: (800) 774-3279

http://www.e-dbi.com

Fed Reporter, Inc.

28118 Agoura Road, Suite 202

Agoura Hills, California 91301

Telephone: (888) 972-3772

http://www.fedreporter.net

FIS Compliance Solutions

16855 West Bernardo Drive,

Suite 270

San Diego, California 92127

Telephone: (800) 825-3772

http://www.callreporter.com

FiServ, Inc.

1345 Old Cheney Road

Lincoln, Nebraska 68512

Telephone: (402) 423-2682

http://www.premier.fiserv.com

KPMG LLP

303 Peachtree Street, Suite 2000

Atlanta, Georgia 30308

Telephone: (404) 221-2355

https://advisory.kpmg.us/risk-

consulting/frm/capital-

management.html

SHAZAM Core Services

6700 Pioneer Parkway

Johnston, Iowa 50131

Telephone: (888) 262-3348

http://www.cardinal400.com

Vermeg

(formerly Lombard Risk)

205 Lexington Avenue,

14th floor

New York, New York 10016

Telephone: (212) 682-4930

http://www.vermeg.com

Wolters Kluwer Financial Services

130 Turner Street, Building 3,

4th Floor

Waltham, Massachusetts 02453

Telephone (800) 261-3111

http://www.wolterskluwer.com

Johnston, Iowa 50131

Telephone: (888) 262-3348

http://www.cardinal400.com

Vermeg

(formerly Lombard Risk)

205 Lexington Avenue,

14th floor

New York, New York 10016

Telephone: (212) 682-4930

http://www.vermeg.com

Wolters Kluwer Financial Services

130 Turner Street, Building 3,

4th Floor

Waltham, Massachusetts 02453

Telephone (800) 261-3111

http://www.wolterskluwer.com

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

14

APPENDIX

Section 214 of EGRRCPA, which includes the definition of “HVCRE ADC Loan,” is as follows:

SEC. 214. PROMOTING CONSTRUCTION AND DEVELOPMENT ON MAIN STREET.

The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by adding at the end the following

new section:

‘‘SEC. 51. CAPITAL REQUIREMENTS FOR CERTAIN ACQUISITION, DEVELOPMENT, OR

CONSTRUCTION LOANS.

‘‘(a) IN GENERAL.—The appropriate Federal banking agencies may only require a depository institution to

assign a heightened risk weight to a high volatility commercial real estate (HVCRE) exposure (as such term is

defined under section 324.2 of title 12, Code of Federal Regulations, as of October 11, 2017, or if a successor

regulation is in effect as of the date of the enactment of this section, such term or any successor term

contained in such successor regulation) under any risk-based capital requirement if such exposure is an

HVCRE ADC loan.

‘‘(b) HVCRE ADC LOAN DEFINED.—For purposes of this section and with respect to a depository

institution, the term ‘HVCRE ADC loan’—

‘‘(1) means a credit facility secured by land or improved real property that, prior to being reclassified by

the depository institution as a non-HVCRE ADC loan pursuant to subsection (d)—

‘‘(A) primarily finances, has financed, or refinances the acquisition, development, or construction

of real property;

‘‘(B) has the purpose of providing financing to acquire, develop, or improve such real property into

income-producing real property; and

‘‘(C) is dependent u

ified by

the depository institution as a non-HVCRE ADC loan pursuant to subsection (d)—

‘‘(A) primarily finances, has financed, or refinances the acquisition, development, or construction

of real property;

‘‘(B) has the purpose of providing financing to acquire, develop, or improve such real property into

income-producing real property; and

‘‘(C) is dependent upon future income or sales proceeds from, or refinancing of, such real property

for the repayment of such credit facility;

‘‘(2) does not include a credit facility financing—

‘‘(A) the acquisition, development, or construction of properties that are—

‘‘(i) one- to four-family residential properties;

‘‘(ii) real property that would qualify as an investment in community development; or

‘‘(iii) agricultural land;

‘‘(B) the acquisition or refinance of existing income-producing real property secured by a mortgage

on such property, if the cash flow being generated by the real property is sufficient to support the debt

service and expenses of the real property, in accordance with the institution’s applicable loan

underwriting criteria for permanent financings;

‘‘(C) improvements to existing income-producing improved real property secured by a mortgage

on such property, if the cash flow being generated by the real property is sufficient to support the debt

service and expenses of the real property, in accordance with the institution’s applicable loan

underwriting criteria for permanent financings; or

‘‘(D) commercial real property projects in which—

‘‘(i) the loan-to-value ratio is less than or equal to the applicable maximum supervisory loan-to-

value ratio as determined by the appropriate Federal banking agency;

‘‘(ii) the borrower has contributed capital of at least 15 percent of the real property’s appraised,

‘as completed’ value to the project in the form of—

‘‘(I) cash;

cts in which—

‘‘(i) the loan-to-value ratio is less than or equal to the applicable maximum supervisory loan-to-

value ratio as determined by the appropriate Federal banking agency;

‘‘(ii) the borrower has contributed capital of at least 15 percent of the real property’s appraised,

‘as completed’ value to the project in the form of—

‘‘(I) cash;

‘‘(II) unencumbered readily marketable assets;

‘‘(III) paid development expenses out-of-pocket; or

‘‘(IV) contributed real property or improvements; and

‘‘(iii) the borrower contributed the minimum amount of capital described under clause (ii)

before the depository institution advances funds (other than the advance of a nominal sum made

in order to secure the depository institution’s lien against the real property) under the credit facility,

and such minimum amount of capital contributed by the borrower is contractually required to

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2019

15

remain in the project until the credit facility has been reclassified by the depository institution as a

non-HVCRE ADC loan under subsection (d);

‘‘(3) does not include any loan made prior to January 1, 2015; and

‘‘(4) does not include a credit facility reclassified as a non-HVCRE ADC loan under subsection (d).

‘‘(c) VALUE OF CONTRIBUTED REAL PROPERTY.—For purposes of this section, the value of any real

property contributed by a borrower as a capital contribution shall be the appraised value of the property as

determined under standards prescribed pursuant to section 1110 of the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989 (12 U.S.C. 3339), in connection with the extension of the credit facility

or loan to such borrower

r purposes of this section, the value of any real

property contributed by a borrower as a capital contribution shall be the appraised value of the property as

determined under standards prescribed pursuant to section 1110 of the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989 (12 U.S.C. 3339), in connection with the extension of the credit facility

or loan to such borrower.

‘‘(d) RECLASSIFICATION AS A NON-HVRCE ADC LOAN.—For purposes of this section and with respect

to a credit facility and a depository institution, upon—

‘‘(1) the substantial completion of the development or construction of the real property being financed

by the credit facility; and

‘‘(2) cash flow being generated by the real property being sufficient to support the debt service and

expenses of the real property, in accordance with the institution’s applicable loan underwriting criteria for

permanent financings, the credit facility may be reclassified by the depository institution as a Non-HVCRE

ADC loan.

‘‘(e) EXISTING AUTHORITIES.—Nothing in this section shall limit the supervisory, regulatory, or

enforcement authority of an appropriate Federal banking agency to further the safe and sound operation of an

institution under the supervision of the appropriate Federal banking agency.’’.